Got Milk 401K?
A 401k can be a powerful tool to help you save for retirement. In 2017, you can contribute up to $18,000 while your employer may match some or all of your contribution. By comparison IRA limits are only $5,500 ($6,500 if you’re age 50 or older), or if you made less than these limits the maximum of your earned income.
So you can see that a 401k offers much more opportunity to save. If you are actively saving for retirement you should consider the benefits of a 401k.
Know the Difference Between a Roth and Traditional Account
Like an IRA 401k plans are available in two types. A traditional 401k allows you to contribute to your account before taxes are taken out of your paycheck. A Roth 401k allows to contribute with whatever wages are left after taxes have been taken out. While traditional accounts may lower your tax burden today, Roth accounts grow tax-free and allow for tax-free withdrawals. Furthermore, there is no penalty to withdraw money that you have contributed to a Roth 401k if you are younger than 59 and a half.
Don’t Forget About the Employer Match
Many companies will match employee contributions up to a certain percentage. For instance, your employer may offer a 100 percent match on contributions up to $1,000. If you were to contribute $1,000, you would get a guaranteed 100 percent return on that money. In addition, you will still benefit from compounded returns for as long as the account is active.
Self-Employed Workers Can Start Their Own 401k
Those who work for themselves can establish a 401k plan and fund it like they would if they were employed by another company. Furthermore, they are also eligible to contribute both as an employer and an employee. This may help to reduce personal income taxes while also reducing business taxes as a 401k employer contribution is a business expense. However, starting your own 401k plan can be much more complex than setting up an IRA so you should definitely get expert advice when setting one up.
It is never too early to start thinking about and saving for retirement. If your employer offers a 401k plan, you should join as soon as possible and start making contributions whenever you become eligible to do so. This is because the sooner that you start contributing, the more time that your money has to compound tax-free in your account.
Other Considerations:
How Independent Will You Be When You Get Older?
As you age, it becomes more likely that you will suffer from poor health. In some cases, you may want to stay close to friends and family members. However, if you become incapacitated you may end up in an assisted living community or need other forms of assistance. Therefore, it is important to consider the potential costs and benefits of a Long-term care policy. See: Why Do I Need a Long Term Care Insurance Policy?
See also: Planning Tips for Your Retirement
